“The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.”
An old proverb, but whilst possibly one of the richest kings who ever lived may have come to the conclusion that – with regards to the actions of people at least – nothing changes, if you were to believe the headline-grabbing statements from financial commentators (particularly those whose name rhymes with “Pobert Reston”), you would be forgiven for thinking that something new is about to happen; the Greeks are about to tip into the abyss and take the planet with them.
Dear me, what do we do!
Long-standing clients of Basi & Basi will likely be familiar with two principles; the first is above. The second is that history is our greatest tutor. Let’s take a little look at some history.
The first recorded default by Greece was in 2010….no, sorry, 1932. No, I am mistaken, 1894….1860? Nope, it was definitely 1843. Oh sorry, I forgot 1826, that’s surely the first……
Actually, we need to goo all the way back to c.400 B.C. That’s around the time of the first Greek default, when either 10 or 13 Greek city states (historians argue which) borrowed money from the Temple of Delos. Unfortunately, from what we can gather, the city states were rather over-ambitious and incurred what I believe (as far as I can make out) is the first recorded sovereign debt default outside of the Bible. The Temple of Delos took an 80% loss on the principle loaned out – sound familiar?
In fact, the Greeks have been in default each one of the years listed above, or 5 times in the last couple of centuries, or on another scale, approximately 50% of the time it has been independent.
Fortunately, each time the connected nations who were burnt recovered sufficiently; to that matter, so did Greece (although it took a little time; after the 1826 default Greece was shut out of the international markets for so long it had to borrow from it’s own Central Bank, who probably did recognise the risk their own government posed and allocated a rate around twice the prevailing international rate. It took until 1878 to pay off it’s debts.).
Time faded to mist and eventually some clever person who had done his history homework looked at the risk and decided to lend to Greece at an extremely lucrative rate of interest for the historic risk he was taking and fully recognising this.
The problem was, he was followed by ten poor fools who hadn’t done their history homework, believed whatever they were told and lent out at a low rate and expected a guarantee of return (this happened in 1878 after Greece paid off it’s 40-year default, was lent again and promptly defaulted in 1894. The pattern continued to our time.)
What do we Learn
The first thing is this; beware of Greeks bearing (interest rate) gifts. History doesn’t really change so much when it comes to the actions of people in similar situations (for those jumping up and down and pointing to the rise of the United States, or the current rise of China as “unpredictable” – let’s go for a coffee and debate it. I’ll either convince you it could be seen, or you disagree. Either way, I’ll pay for the coffee.)
When Greece is doing well, it borrows. It then crashes. If you invest knowing this, you will invest smartly and cognisant of the risks, so you won’t be too worried (sorry for wasting your time to get to this).
As for the (economic) planet, well yes everytime Greece defaults it creates a catastrophe for a few years – but it doesn’t change the fundamental nature of the economic cycle nor the actions that individuals take. Diversification still works. Asset allocation (balancing where and how you invest) still works, you just have to know where to go, and when.
But that’s what we’re there for, of course
That’s enough musings for one evening, more may follow (if they do, they will be similar to London Buses; unpredictable at best). Enjoy your day!
Please note that the information on this page is a personal view only and does not constitute individual advice.